Philip Morris: Time To Take A Closer Look But Don't Jump Before A Pullback

Phillip Morris (NYSE:PM) is a good play for the long-term investor (especially the dividend investor), but as it is trading close to its recent highs, we would wait for a pullback before jumping in. Consider waiting for a test of the 82-83 ranges before deploying new capital. One other option would be to sell puts at strikes you would not mind owning the stock at. If the stock trades below the strike price, the shares could be assigned to your account. If they do not trade below the strike price, you get to walk away with the premium. This premium could be applied towards any future purchase.

Reasons to consider Philip Morris :

It has very strong levered free cash flow of $9.0 billion.

It has a decent quarterly earnings 12.6%

A quarterly revenue growth rate of 9.7%

A good retention rate of 61%

A strong relative strength score of 86 out of a possible 100

Profit margins of 27%

Five-year cash flow average of $4.20

Annual EPS before NRI increased from $2.80 in 2007 to $4.88 in 2011.

A good payout ratio of 0.59%

A projected 3-5 year EPS growth rate of 9.33%

A very strong Interest coverage rate of 15.9

A decent yield of 3.5%

Net income has surged from $6.3 billion in 2009 to $8.5 billion in 2011, an increase of over 36%.

Cash flow per share has increased from $3.83 in 2009 to $5.55 in 2011, an increase of 44%.

It sports a decent five-year dividend of 4.26%

It has a good free cash flow yield of almost 5.97%

It reported diluted EPS of $4.85 in 2011 compared to $3.92 in 2010, an increase of 23.7%.

For 2011, net revenues came in at $3.1 billion an increase $14.3%.

It exceeded its one year gross productivity and savings target of $250 million.

Free cash flow increased by 10.4% to 9.6 billion in 2011.

It increased its quarterly dividend during the year by 20%; the annual rate now stands at $3.08.

It repurchased 80.5 million shares of common stock in 2011 for $5.4 billion.

Projected year over year growth rate of 7.07% and 10.64% for 2012 and 2013 respectively

Management revised its 2012 forecast of diluted earnings per share in the range of $5.20-$5.30 vs. $4.85 in 2011. These forecasts are based on the current exchange rates.

$100K invested science its inception would have grown to $192k. If the dividends were reinvested the rate of return would have been higher.

3 year share repurchase program

Click to enlarge

Click to enlarge

Company : Philip Morris

Levered Free Cash Flow = 9.00B

Brief Overview

1. Relative Strength 52 weeks = 86

2. Cash Flow 5-year Average = 4.2

3. Profit Margin = 27.82%

4. Operating Margin = 43.55%

5. Quarterly Revenue Growth = 9.7%

6. Quarterly Earnings Growth = 12.6%

7. Operating Cash Flow = 10.03B

8. Beta = 0.87

9. Percentage Held by Institutions = 1.1%

10. Short Percentage of Float = 0.5%

Growth

1. Net Income ($mil) 12/2011 = 8591

2. Net Income ($mil) 12/2010 = 7259

3. Net Income ($mil) 12/2009 = 6342

4. Net Income Reported Quarterly ($mil) = 2161

5. EBITDA ($mil) 12/2011 = 14325

6. EBITDA ($mil) 12/2010 = 12132

7. EBITDA ($mil) 12/2009 = 10893

8. Cash Flow ($/share) 12/2011 = 5.55

9. Cash Flow ($/share) 12/2010 = 4.46

10. Cash Flow ($/share) 12/2009 = 3.83

11. Sales ($mil) 12/2011 = 76346

12. Sales ($mil) 12/2010 = 67713

13. Sales ($mil) 12/2009 = 62080

14. Annual EPS before NRI 12/2007 = 2.8

15. Annual EPS before NRI 12/2008 = 3.24

16. Annual EPS before NRI 12/2009 = 3.29

17. Annual EPS before NRI 12/2010 = 3.87

18. Annual EPS before NRI 12/2011 = 4.88

Click to enlarge

Dividend history

1. Dividend Yield = 3.50

2. Dividend Yield 5-Year Average = 4.26

Dividend sustainability

1. Payout Ratio = 0.59

2. Payout Ratio 5 Year Average = 0.66

Performance

1. Next 3-5 Year Estimate EPS Growth rate = 9.33

2. ROE 5 Year Average = 163.7

3. Current Ratio = 1

4. Current Ratio 5 Year Average = 1.28

5. Quick Ratio = 0.46

6. Cash Ratio = 0.24

7. Interest Coverage Quarterly = 15.98

Conclusion

The markets are still very volatile and a normal healthy correction usually ends off with a retest of the recent lows. Thus, there is a decent chance that the markets could pull back and test their lows before mounting a stronger rally. In general, a great way to get into a stock at a price of your choosing is to sell puts at strikes you would not mind owning the stock at. Investors looking for other ideas might find this article to be of interest Seadrill Ltd: Time To Take A Closer

EPS and Price Vs industry charts obtained from zacks.com. A major portion of the historical data used in this article was obtained from zacks.com. Share repurchase table sourced from pmi.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: It is imperative that you do your due diligence and then determine if the above play meets with your risk tolerance levels. The Latin maxim caveat emptor applies-let the buyer beware